COMMISSIONER OF INCOME TAX Vs. INSANIYAT TRUST
LAWS(GJH)-1988-4-14
HIGH COURT OF GUJARAT
Decided on April 18,1988

COMMISSIONER OF INCOME TAX Appellant
VERSUS
INSANIYAT TRUST Respondents


Cited Judgements :-

COMMISSIONER OF INCOME TAX VS. RAM FOUNDATION [LAWS(DLH)-2001-2-55] [REFERRED .]
ANAND CHARITABLE TRUST VS. COMMISSIONER OF WELTH TAX [LAWS(DLH)-2002-4-152] [REFERRED]
COMMISSIONER OF INCOME TAX VS. SIR SHRI RAM FOUNDATION [LAWS(DLH)-2001-2-117] [REFERRED TO : (1988) 173 ITR 248 (GUJ) : TC 23R.1545]
COMMISSIONER OF INCOME TAX VS. RADHA KRISHNA TEMPLE TRUST [LAWS(ALL)-2004-10-123] [REFERRED TO]
J K Trust VS. Commissioner of Wealth tax [LAWS(CAL)-1992-7-38] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. KASTURBAI SCINDIA COMMISSION TRUST [LAWS(BOM)-1993-2-33] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. AMBALAL SARABHAI CHARITY TRUST [LAWS(GJH)-2002-2-56] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. VENU NIDHI [LAWS(GJH)-2002-7-132] [REFERRED TO]
J. K. TRUST VS. COMMISSIONER OF WEALTH-TAX [LAWS(CAL)-1992-3-39] [REFERRED TO]
ITO WARD-2 VS. SIDDHARTHA EDUCATIONAL SOCIETY [LAWS(IT)-2015-1-382] [REFERRED TO]


JUDGEMENT

R.C.MANKAD,J. - (1.)THE assessee is a public charitable trust. The assessment year under consideration is 1973 74, the corresponding previous year being the financial year 1972 73 which ended on 31st March, 1973. Miss Mrudula Sarabhai donated 89 ordinary shares of M/s Karamchand Premchand Pvt. Ltd. and 15 ordinary shares of Ahmedabad Manufacturing & Calico Printing Co. Ltd. of the value of Rs. 2,06,592 to the assessee trust in March, 1972. The assessee trust received Rs. 3,636 by way of dividend in respect of the said shares in the previous year. One of the questions which arose before the ITO in the course of the assessment for the asst. year 1973 74 was whether this dividend income of Rs. 3,636 was exempt from payment of income tax under S. 11 of the IT Act, 1961 ("the Act" for short). The other questions which arose for consideration before the ITO in the course of the assessment are not relevant for the purpose of the present reference. The ITO took the view to the effect that the provisions of S. 13(2)(h) r/w S. 13(2)(c) of the Act were attracted. He, therefore, held that the assessee trust's right to exemption under S. 11 was forfeited to the extent of the dividend income of Rs. 3,636. In other words, the ITO held that the assessee trust was not entitled to claim exemption in respect of the said dividend income under S. 11 of the Act.
(2.)THE AAC upheld the view taken by the ITO in appeal preferred by the assessee trust against the assessment order made by the ITO. The assessee carried the matter in further appeal before the Tribunal. The Tribunal, relying on a decision of the Full Bench of the Tribunal, held to the effect that the condition precedent under S. 13(2)(h) requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in S. 13(3) have substantial interest. Therefore, held the Tribunal, assuming that the persons referred to in S. 13(3) have substantial interest in the companies whose shares were donated to the assessee trust, the condition precedent in S. 13(2)(h) was not fulfilled in the instant case. The view which the
Tribunal took was to the effect that the assessee trust itself had not invested the funds of the trust in the said shares which were donated to it. It, therefore, could not be said that the funds of the assessee trust are invested or continue to remain invested in the said companies within the meaning of S. 13(2)(h). In the view which the Tribunal took, the Tribunal held that the assessee trust was entitled to claim exemption in respect of the dividend income of Rs. 3,636 under S. 11 of the Act. It is in the background of the above facts that the following questions are referred to us for our opinion under S. 256(1) of the Act :

"1. Whether the Tribunal was right in law in holding that the condition precedent in S. 13(2)(h) of the IT Act is not fulfilled in this case because that condition requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in s. 13(3) have substantial interest and because such funds were not invested in purchasing the shares which were donated to the trust ? 2. Whether the burden lay on the Revenue to show that the provisions of S. 13(1)(c) of the IT Act applied to the case of the assessee in view of Expln. (3) to that section ? 3. Whether the Tribunal was right in law in holding that the case of the assessee was not hit by the provisions of S. 13(2)(h) of the IT Act ?"

(3.)IN order to appreciate the controversy involved in this reference, it is necessary to read the relevant provisions of ss. 11, 12 and 13 of the Act which are as under :
"11(1) Subject to the provisions of ss. 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty five per cent of the income from such property; ... 12. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of S. 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and S. 13 shall apply accordingly. 13(1) Nothing contained in S. 11 or S. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof ... (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in Sub S. (3) :...... (2) Without prejudice to the generality of the provisions of cl. (c) of Sub S. (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub s. (3), (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in Sub S. (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in Sub S. (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in Sub S. (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub s. (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in Sub S. (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in Sub S. (3) during the previous year for consideration which is less than adequate; (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in Sub S. (3) : Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property so diverted does not exceed one thousand rupees; (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to in Sub S. (3) has a substantial interest. (3) The persons referred to in cl. (c) of Sub S. (1) and Sub S. (2) are the following, namely: (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds five thousand rupees; (c) where such author, founder or person is an HUF, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in cls. (a) (b), (c), (cc) and (d) has a substantial interest."

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